Dairy: the good news, the bad news

Larry Smith, 64, owner of Smith Farms in Bangor, milks his cows recently. Smith has about 150 head of Holstein cattle and milks 75 of them. “I make a living at it, but things are going as good here as the rest of the economy,” Smith said about his farm. “It’s not all doom and gloom. There are farms that are doing good, but everything is costing more nowadays. It’s getting harder to get by.” Smith is a fourth-generation dairy farmer. Buy Photo

The national dairy industry has been transformed over the past 20 years: Mega-dairies with tens of thousands of cows ship milk from California to Florida, while the processing side of the industry has consolidated and specialized, leaving farmers with fewer and fewer options.

Here in Maine, however, experts say that small family farms remain the backbone of the industry.

“Maine’s dairy industry is well positioned to serve the consumers of Maine because we still have in-state manufacturing options: fluid plants and a great increase in specialty and artisan niche cheese, butter, ice cream and other dairy product processing,” said Julie Marie Bickford, executive director of the Maine Dairy Industry Association. “Maine’s dairy farms are diverse — in size, in location, and in production style. Maine still produces almost the same amount of milk as Maine people consume in all dairy products, a unique equilibrium that is envied by other states and regions.”

But there are deep concerns among farmers and dairy leaders about the shrinking processing market — one company now controls 40 percent of all U.S. milk — and how that affects the prices Maine farmers receive.

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It is this consolidated control, dairy leaders say, that results in Maine farmers getting about $1.01 from each gallon of milk while consumers pay higher and higher prices.

According to the U.S. Department of Agriculture, the price of milk at the grocery store rose 40 percent between 1998 and 2007. Yet for every dollar that consumers spend on milk, dairy farmers receive only 27 cents, 25 percent less than they received in 1998. The remaining share of the higher price consumers pay is captured by dairy and food processing firms.

In less than 10 years, according to USDA statistics, more than 52,000 dairy farms have been lost nationwide.

“Milk production has remained constant, however, because more and more cows are pushed onto the farms that remain,” said a recently released report by Food and Water Watch, a grass-roots watchdog agency. “More than a quarter of all milk now comes from industrial dairies with more than 2,000 cows, nearly 20 times larger than the national average herd size.”

But here in Maine, experts say, the dairy industry remains a farm family type of operation.

“When measured on a national scale, the vast majority of Maine dairy farmers are small-sized operations,” Bickford said recently. “And even our largest farms in Maine fall on the smaller side of the medium-sized category. Our largest farm milks [fewer] than 1,500 cows.”

But is this smallness good economic policy?

“I don’t know,” David Marcinkowski, a dairy specialist at the University of Maine, said. “I’m not sure what a healthy local production system looks like. Is it a bunch of small, inefficient farms, propped up with an artificially high milk price, or is it one large farm with high efficiencies that can compete on a global basis?”

Marcinkowski is not optimistic. “I think dairy farmers are in a lot of trouble,” he said. “They are stuck doing business with major corporations that sell them inputs and buy their products. Everyone makes money on the milk but the farmers. Pastoral scenes with happy cows on Old MacDonald’s farms may sell milk, but they don’t reflect the competitive and business nature of today’s dairy farm. Large farms are the Wal-Marts of the dairy industry because their efficiencies of scale mean profits.”

The national consolidation of cooperatives and milk processors also is having an impact in Maine.

“The structure of the dairy market now looks like a giant hourglass: Milk produced on the 70,000 remaining U.S. dairy farms is funneled through a handful of powerful buyers and retailers — who exert tremendous pressure on farmers to sell their milk cheap — and then sold to millions of consumers,” said the Food and Water Watch report, Dairy 101.

The report says that Dean Foods now controls around 40 percent of the nation’s fluid milk supply, 60 percent of all organic milk and 90 percent of soy milk. Consumers may not see Dean’s label in the dairy case, but the company owns or sells Borden, Garelick, Hershey’s fluid chocolate milk, Land O’Lakes, Verifine, Horizon Organic, Organic Cow of Vermont, Silk Soy milk and several dozen others.

“While we have definitely seen processing consolidation in Maine, we are fortunate to still have two independent dairy processors — Oakhurst and Houlton Farms Dairy — and have two other fluid processing plants that represent the top two processing leaders in the nation [Dean Food-Garelick and H.P. Hood],” Bickford said.

“Because farmers pay the costs of hauling their milk from the farm to the plant, Maine farmers are limited to the processing plants in Maine and just over the border in New Hampshire and Massachusetts, limiting their financial choice of competitive markets to sell their milk.”

Marcinkowski also is concerned about the shrinking processing population.

“There is no doubt that in recent years dairy has undergone the same consolidation that we have seen in other agricultural commodities such as beef and feed grains,” Marcinkowski said. “Dean Foods is twice the size of any other processor in the U.S. and their presence is felt in nearly every state. I don’t think there is any doubt that they can control the market and bully anyone into doing what they want, including controlling prices.”

Marcinkowski said this control affects the federal order price for milk, and there is real concern among dairy farmers about price manipulation on the Chicago Mercantile Exchange.

Bickford said the size of farms should not be the determining factor for economic sustainability, that the whole operation, including its land base, its nutrient management plan, its management style and its managing-operating expertise, needs to be evaluated. She said Maine farmers should not be prevented from using technology and also should capitalize on niche markets and local appeal.

“If we are to compete with farmers in other states, regions, and, in today’s business environment, the rest of the world, then our farmers need to have choices,” she said.

Bickford said one key aspect is that Maine’s political leaders have recognized the importance of a healthy and sustainable dairy industry to the economic vitality of the state’s rural communities. They have passed laws and a three-tiered pricing support plan that helps weather fluctuations in the volatile milk market.

“The support of programs to help dairy farmers has allowed Maine to weather the changes in the national makeup of the dairy industry, and maintain critical mass in the number of dairy farms populating the Maine landscape,” Bickford said.